Nerd's Eye View blog

Weekend Reading for Financial Planners (July 7-8)

July 6, 2018 02:55 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the announcement that the CFP Board is gearing up for a new round of advertising campaigns as part of its ongoing public awareness campaign, this time focusing on the emotional and psychological benefits of working with a financial advisor, including feeling more "confident, optimistic, secure, and at ease" with one's finances.

Also in the news this week is a controversial court ruling in Georgia that allowed an RIA to enforce an employment agreement that required its departing advisors to give 60-90 days notice in advance of leaving the firm (where the RIA sued after the advisors departed the firm abruptly to join Morgan Stanley under the terms of the Broker Protocol), raising the question of whether broker-dealers in turn might try to add similar "garden leave" requirements to their employment contracts as a way to subvert the Broker Protocol for departing brokers. And there was also a big announcement from Vanguard, just in time for "Independence Day", that starting in August it will begin to offer nearly 1,800 ETFs on an expanded no-transaction-fee ETF platform... and in the process, declaring war on other custodian's existing back-end revenue-sharing or shelf-space distribution agreements required to get onto their NTF ETF platforms (from which Vanguard has increasingly been booted in recent years for being unwilling to pay to play).

From there, we have a number of retirement-oriented articles, from a look at the rise of the FIRE (Financial Independence, Retire Early) movement, to a discussion from a longevity researcher about whether it would be more appropriate for people to spend their 20s and 30s "just" being trainees/apprentices and raising families and not starting full-time jobs until their 40s (given our increasing capability to remain productive well into our 70s thanks to medical advances), and an examination of whether advisors may be overestimating health care costs in retirement as recent studies have shown that beyond Medicare premiums themselves the medical expenses of retirees are actually remarkably moderate and stable (especially for those who have at least a "mass affluent" level of wealth).

We also have several practice management articles, including: an analysis of why the greatest challenge for advisory firm business owners to manage is the potential gap between workload obligations to clients and the staff resources necessary to deliver promised services; why especially in the early years of an advisory firm, 5-year (or even 3-year) business plans are largely useless; and how to demonstrate the ongoing value of a financial advisor by creating a "Client Confidence Index" that periodically surveys clients on their feelings of financial confidence, control, and clarity... and then reflecting those results back to them to show progress and the advisor's value-add over time.

We wrap up with three interesting articles, all around the theme of taking vacations to better maximize health and productivity: the first looks at the growing trend of workers not taking vacations, even when they're otherwise available, due to both the workaholic culture of many firms, and often simply a lack of systems to make them feel safe and comfortable to take a vacation; the second examines how even amongst the most productive people, there's often little more than 3-4 hours of "real" work that gets done in a day, suggesting that instead of trying to push employees to work harder throughout an 8-hour workday that it may be better to embrace taking breaks instead; and the last provides a remarkably simple and effective system to handle the pain of "digging out" from the email backlog after a long vacation... by simply creating an autoresponder to tell people to email you again if they feel it's necessary after you're back, and then just delete all the email in your Inbox on your first day back at work!?

Enjoy the "light" reading!

Vanguard Declares War Against Custodial Platform Shelf-Space Distribution Agreements

July 5, 2018 02:54 pm 0 Comments CATEGORY: Investments

Earlier this week, Vanguard announced that in August it will begin offering commission-free ETF trading through its Investor.Vanguard.com online brokerage platform on a whopping 1,800 ETFs... which includes not just its own ETFs, which were available commission-free already, but virtually all ETFs, including those from all their major competitors like Blackrock, State Street, and Schwab (on top of the 2,500+ mutual funds already available through Vanguard without trading fees). Yet while the media immediately jumped on the announcement as a new stage of the price wars on ETF trading costs, as Vanguard's platform will offer nearly 5X - 10X the breadth of ETFs as their largest competitors... the real significance of Vanguard's announcement is much bigger.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss why the real impact of Vanguard's announcement is a potentially fatal disruption to the nature of no-transaction-fee (NTF) ETF platforms themselves, undermining existing pay-to-play distribution agreements to the most popular NTF ETF platforms today, and potentially pushing RIA custodial platforms instead to charge advisors (or investors) a more transparent and less conflicted basis point fee directly for the clearing, custodial, and other services they provide.

Some historical perspective on the use of shelf-space and revenue-sharing distribution agreements for fund providers may be helpful to understand why Vanguard's announcement is so disruptive. The first “no transaction fee” (NTF) online brokerage platforms got going in the 1990s, pioneered by companies like Schwab with their OneSource program, establishing a giant online supermarket of mutual funds that were made available (and funded) by 12b-1 shareholder servicing fees and sub-TA fees instead of charging "traditional" transaction fees to purchase a fund. But then along came ETFs, which "felt" like mutual funds to many consumers who wanted to be able to buy them without transaction fees as well... except, ETFs don't have a 12b-1 fee or a sub-TA fees! As a result, when the online brokerage platforms wanted to offer ETFs under a no-transaction-fee platform, they needed a new way to get paid. What emerged was brokerage platforms negotiating “distribution” agreements directly with the ETF providers that effectively said, "If you want to be listed in our NTF platform, you need to pay us directly", taking the form of other a revenue-sharing agreement (paying basis points for assets on the platform) or "shelf-space" agreements (which are typically negotiated flat fees and not set as basis point directly, though they are still effectively loose basis point equivalents based on total assets). The key point: one way or another, fund providers had to pay to be on the NTF platform, which is why most NTF ETF platforms have a limited lineup (or only those providers willing to pay).

And, mostly out of necessity for distribution opportunities, many fund providers have paid to be on these platforms. The bold exception to this trend was fund companies like Vanguard and DFA, which were notorious for not paying dollars under the table to get onto these NTF platforms. Early on when many NTF ETF platforms were being built out, Vanguard still wasn’t nearly as dominant in the ETF space as they are today, so many companies allowed Vanguard onto their platforms as a way to validate their platform (with Vanguard's name recognition) in the hopes of attracting clients who might also use some of the other NTF funds (that do pay to be listed). But as Vanguard has continued its meteoric rise over the past several years, Vanguard attracted so much in assets onto these platforms that it was adversely impacting the profitability of the entire platforms... leading companies to swap Vanguard out for other ETF providers that were more willing to pay to participate.

And that is why it’s such a big deal that Vanguard made the announcement this week that it’s going to make virtually all ETFs available on its own online brokerage platform. The significance is that they’re offering a no-transaction-fee platform without requiring the same back-end shelf space payments that all the other brokerage and custodial platforms require. In other words, the latest move by Vanguard isn’t a price war against ETF trading fees; instead, it's declaring war on the entire model of asset managers being forced to pay back-end revenue-sharing and shelf-space agreements to get onto those platforms in the first place, by offering their own and not charging the asset managers what everyone else charges!

How will this potentially play out from here? ETFs that currently pay NTF platform fees are compelled to increase their expense ratios to cover the cost (because the money has to come from somewhere to pay)... except now ETF providers have a problem: their ETF expense ratios are boosted higher to compete on NTF platforms at companies like Schwab, Fidelity, and TD Ameritrade, but the higher expense ratios to cover the distribution costs on those platforms will reduce their competitiveness on the new mega Vanguard platform! As a result, ETF providers may be compelled to start creating a new series of their popular ETFs, with those additional distribution costs stripped out, creating a lower-cost "clean ETF" that can better compete in a true NTF environment. Yet once this happens, since the ETFs will be available elsewhere as well (just with a transaction cost instead) it will recreate the multiple-share-class effect we have now in mutual funds, where there’s a higher cost version of the mutual fund in the NTF platform – because it’s pushed up by the 12b-1 and sub-TA fees – and then there’s a lower cost version of the same mutual fund you can buy directly. Which ultimately will lead to consumers (and advisors) adopting whichever fund is cheaper in their situation, putting further pressure on custodians to offer less conflicted models where investors (or advisors) are simply charged a transparent basis point fee for the clearing and custodial services provided instead.

But ultimately, the key point is to acknowledge that the real news is not that Vanguard is simply offering a larger NTF platform than other providers. The real news is that this may be a fatal disruption to NTF platforms themselves, and a step towards a more transparent model of custodial services over the more conflicted models of back-end distribution agreements that currently exist!

The Hierarchy Of Tax-Preferenced Savings Vehicles For High-Income Earners

July 4, 2018 07:01 am 0 Comments CATEGORY: Taxes

The Federal government has long incentivized saving for retirement and other financial goals by offering some combination of three types of tax preferences: tax deductibility (on contributions), tax deferral (on growth), and tax-free distributions. As long as the requirements are met, various types of accounts - traditional to Roth IRAs, and annuities to 529 plans to Health Savings Accounts - enjoy at least one tax preference, often two, and sometimes all three.

For most households, these tax-preferenced accounts simply help to encourage (and tax-subsidize) savings towards various goals, and cash-flow-constrained households allocate based on whichever goal has the greatest priority. Yet for a subset of more affluent households, where there's "enough" to cover the essential goals, suddenly a wider range of choices emerges: how best to maximize the value of various tax-preferenced accounts where it's feasible to contribute to several different types at the same time?

Fortunately, the fact that not all accounts have the exact same type of tax treatment means there is effectively a hierarchy of the most preferential accounts to save into first (up to the dollar/contribution limits), after which the next dollars go to the slightly less favorable accounts, and so on down the line... from triple-tax-preferenced accounts such as the Health Savings Account (tax-deductible on contribution, tax-deferred on investment growth, and tax-free at distribution for qualified medical expenses expenses), to double tax-preferenced accounts such as traditional and Roth-style IRAs, to single tax-preferenced accounts such as a non-qualified deferred annuity (which is tax-deferred only). Which in turn must be balanced against even "traditional" investment strategies of simply buying and holding in a taxable account... which itself effectively defers taxes, thanks to the fact that long-term capital gains are only taxed upon liquidation.

Notably, many of the tax preferences do come with trade-offs (such as penalties for early distribution, and rules about how the funds can be spent), but for high-income earners, those limitations simply mean it will be necessary to coordinate amongst the various tax-preferenced savings accounts at the time of liquidation (and aren't a reason to not use them in the first place).

Of course, there is still the foundational tier of savings to provide an emergency fund (and perhaps funds to promote job mobility and business startup expenses as well, which may be particularly appealing for higher income individuals), but the key point is to acknowledge that there is a hierarchy of tax-preferenced accounts – ranging from triple-tax-preferenced accounts to accounts with no tax preferences – and high-income earners can better limit their tax liabilities and maximize their growth by adhering to this hierarchy!

#FASuccess Ep 079: Niching From The Start To Turbo-Charge $250k Of Recurring Planning Fees In Only 3 Years with Anjali Jariwala

July 3, 2018 07:01 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome, everyone! Welcome to the 79th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Anjali Jariwala. Anjali is the founder of FIT Advisors, a niche advisory firm that works entirely virtually with clients, and focuses on young physicians and small business owners in their 30s providing financial, investment, and tax planning advice for an annual retainer fee that starts at $10,000/year.

What's unique about Anjali, though, is that by focusing in on a niche from the start, which allowed her to pursue unique marketing channels that other financial advisors don't use, she's been able to grow to more than $250,000/year of recurring financial planning fees in just her first 3 years. And she did it while also starting a family, having had her first baby barely a year after the launch of the firm.

In this episode, we talk in depth about how Anjali positioned her advisory firm squarely in a niche of serving independent physicians and similar small business owners by leveraging her background as a CPA and a CFP certificant, the way she marketed into her niche to attract entirely virtual clients who meet with her solely online, how she iterated her business model rapidly in the first few years from offering short Quickstart plans to charging an upfront planning fee and ongoing monthly retainers until eventually she eliminated all the upfront fees and just raised her ongoing retainer instead, and how she explains and justifies charging a $10,000 retainer fee on clients who have less than $1 million in investable assets, for whom her fee can be substantially higher than the traditional 1%.

We also talk about how Anjali structures her upfront and ongoing planning meetings with clients, from an initial "Get Organized" meeting where clients have to aggregate all of their accounts in eMoney Advisor before they meet, to a second meeting that focuses on cash flow planning alongside George Kinder's famous 3 questions of life planning, and then shifting to a cash flow and implementation meeting... and allowing her clients to set the agenda from there, while sometimes waiting as much as a full year before she ever actually even does a "traditional" retirement planning projection for clients.

And be certain to listen to the end, where Anjali talks about the challenges of balancing out her work life and her home life, the way she broke the news to her early clients that she was going to take time off to have a baby within months of starting with them, and how she reinvested into and restructured her staff support to be able to continue serving her clients while taking time off.

So whether you are interested in learning more about how you can build a successful practice using the retainer model, how to pursue unique marketing channels other financial advisors don't typically use, or are interested in how you can better balance your home life and work life, I hope you enjoy this episode of the Financial Advisor Success podcast!

The Latest In Financial Advisor #FinTech (July 2018)

July 2, 2018 07:01 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the July 2018 issue of the Latest News in Financial Advisor #FinTech – where we look at the big news, announcements, and underlying trends and developments that are emerging in the world of technology solutions for financial advisors and wealth management!

This month's edition kicks off with the big news that robo-advisor-turned-enterprise-digital-advice platform SigFig has raised a whopping new $50M round from famous VC firm General Atlantic, while U.S. Bank announced that it has (finally) deployed its “Automated Investor” robo solution via FutureAdvisor, and Fifth-Third Bank is rolling out its OptiFi digital advice offering (a white-labeled version of Fidelity’s AMP). Which means, after years of buzz, the shift from B2B to B2B2C robo-advisor technology appears to finally be gaining traction, as the startups figure out how to attach next generation modern technology to prior-generation legacy software of the incumbents, and large firms gear up to see whether or to what extent they can really cross-sell managed ETF accounts to their (existing or new) clientele.

From there, the latest highlights also include a number of interesting advisor technology announcements, including:

AdvisorEngine deepens its rebalancing software integration with SmartLeaf
Grove raises an $8M Series A round to scale its virtual-CFP financial planning subscription service
Ethos Insurance and Ladder Life raise new capital to see if life insurance can be bought by consumers (rather than sold to them) by making it easier to purchase in the first place
SmartAsset raises a whopping $28M Series C round to scale up its new SmartAdvisor lead generation program

Read the analysis about these announcements, and a discussion of more trends in advisor technology, in this month's column, including RiXtrema launching a new prospecting tool in the 401(k) market, Orion establishing a data integration with Lincoln Financial to facilitate RIAs using fee-based annuities, Morningstar launching a new Investor Pulse competitive and business intelligence tool for asset managers to show them why their funds are failing to attract investor flows, and the big reveal of a fascinating new pivot from Wealthfront into what may finally be a truly new and uniquely differentiated holistic financial advice platform, focusing no longer on just a managed investment account or even traditional financial planning advice, but moving into the true core and lifeblood of a household’s financial life with tools to automate managing household cash flow.

And be certain to read to the end, where we have provided an update to our popular new “Financial Advisor FinTech Solutions Map”, including a number of new companies and categories!

I hope you're continuing to find this new column on financial advisor technology to be helpful! Please share your comments at the end and let me know what you think!

*And for #AdvisorTech companies who want to submit their tech announcements for consideration in future issues, please submit to [email protected]!

Weekend Reading for Financial Planners (Jun 30 – Jul 1)

June 29, 2018 01:01 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the announcement that the CFP Board is launching a new "Standards Resource Commission", a 13-person panel that will be tasked with creating guidance on the CFP Board's new Code of Ethics and Standards of Conduct to help CFP professionals know what they actually need to do to comply with the new rules.

Also in the news this week was a controversial internal memo at Wells Fargo that going forward, clients will be given the option to "opt out" of permitting their broker to take their contact information if the broker leaves, in what critics are calling an effort by Wells Fargo to end-run the Broker Protocol without formally dropping out of it. And the IRS provided a preview of its new Form 1040, which – in light of all the deductions and credits eliminated by the Tax Cuts and Jobs Act of 2017 – is aiming to consolidate the 1040 itself, the short-form 1040A, and the 1040EZ, into a new shortened postcard-sized tax return... albeit with what will still be a lot of new worksheets to calculate the deductions and credits that remain.

From there, we have a number of marketing and business development articles, from a look at how improving at sales and business development first requires a mindset shift that it's about trying to share services that help (and why would you not be persistent in trying to offer real help to a prospect!), to advice on how to get better at networking, and some insights about what prospective clients actually want to see (and don't want to see) on an advisor's website.

We also have several retirement planning articles, including: a way to separate financial independence into multiple tiers depending on the nature of the lifestyle it can afford, and whether or how many trade-offs must still be accepted to make it work; how to think about and talk to clients whose struggle is not failing to save enough for retirement, but having saved "too much" yet being unwilling to spend and enjoy their wealth; and how to plan for and frame the cost of health (Medicare) insurance and medical expenses in retirement.

We wrap up with three interesting articles, all around the theme of the business of advice itself: the first explores how often the best "advice" that we can offer is simply to listen, help clients be heard, and only occasionally, maybe offer some tidbits of guidance if and when they truly ask for it; the second looks at how the shift to more behaviorally-oriented advice (as opposed to traditional investment and financial advice) can fundamentally change the nature of the questions we ask clients; and the last looks at research finding that perhaps there's such thing as being too empathetic with clients, and that the better way to connect with and help clients while avoiding burnout is not to empathetically feeling with them (and sharing their pain), but simply trying to extend kindness and compassionately feel for them, instead.

Enjoy the "light" reading!

The Best Technology To Adopt First As A Solo Financial Advisor

June 28, 2018 02:12 pm 1 Comment CATEGORY: Technology & Advisor FinTech

Choosing what technology to first adopt as a solo advisor can be a challenge, particularly for those who are not technology-inclined in the first place. In addition to being solely responsible for making the decision, solo advisors now have to choose from an ever-expanding universe of options, as while 10 years ago the primary criticism for both independent RIAs and independent broker-dealers was that there just weren’t many technology choices, now arguably the problem is that there are so many choices it can be overwhelming to figure out what to even use in each category! Not to mention figuring out which category or type of software to tackle and try to adopt first!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss the best technology to adopt first as a solo advisor, and why a key factor in that decision is whether you are trying to grow a large advisory business or operate an efficient lifestyle practice to begin with.

The first question to ask yourself when trying to determine what technology you should adopt first is what kind of firm you are really trying to create. At a high level, you can break advisory firms into two categories: Practices and Businesses. A practice is built around you as the advisor and the founder and the owner, and the capacity of the business is your personal capacity (perhaps with a few support staff) to serve clients. By contrast, an advisory business is something that’s meant to grow beyond just you as the advisor and your personal capacity to serve clients, where you anticipate having multiple advisors and potentially multiple partners someday. This distinction isn’t necessarily about income or financial wherewithal to buy fancy technology versus cheaper technology (as benchmarking studies show the most successful solo practice owners take home as much as partners in advisory businesses); instead, the distinction is important because advisory businesses tend to be most focused on scalability (as they most grow from one to many advisors and handle the challenges that come with that), while practices tend to be most focused on personal efficiency (particularly time efficiency) of the firm owner.

With that in mind, the technology that growing advisory firms must adopt first is straightforward: a good CRM solution. In a growing advisory firm, the CRM is the hub of the entire business. Not just to keep track of clients like a big rolodex, but to track tasks and activities, and workflows to ensure that everything is being done properly. This isn't as important when a firm is just a solo advisor, but when you hire your first staff member, suddenly a CRM system becomes more important. And it really becomes important when you add your second staff member, as there are more process hand-offs between staff members, and the odds that someone has a conversation with the client that neither of the two other team members is privy to increases substantially. Fortunately, for independent advisors, there are a few good CRM options. Wealthbox and Redtail are common among solo advisors, while very process-centric firms may use Junxure. You hear a lot about Salesforce in this category too, but it's fairly expensive and really needs a lot of customization (or at least an overly system like XLR7, Skience, or Financial Services Cloud) before it is a viable option, which makes it impractical for most smaller advisory firms.

When it comes to a lifestyle practice, the best technology to adopt isn’t so straightforward, because it really depends on the size and nature of the firm. If you have a staff member (and especially if you have two staff members), CRM is a “must” once again. You still need someplace to capture key client information, but you may be able to get by using some other system. And because lifestyle practices are so a reflection of the individual advisor and what they do, the “best” technology for you is really whatever solves a pain point for you. If you don’t like how much time it takes to trade and implement their portfolios, consider rebalancing software (e.g., RedBlack or iRebal). If you’re finding it takes a lot of time to produce individual financial plans by hand, look at some of the various financial planning software solutions (e.g., eMoney Advisor, MoneyGuidePro, or RightCapital). And for a lot of solo advisors in lifestyle practices, the truth is that the best technology to implement is not “industry” software, but simply tools that make you personally more productive and efficient, such as a better internal communication tool (e.g., Slack) or scheduling software to cut down on back-and-forth emails setting meeting times with clients.

But ultimately, the key point is to acknowledge that the best software to adopt first as a solo advisor really depends on what type of firm you are trying to grow. The needs of a solo advisor aiming to grow an advisory business are going to be different than the needs of a solo advisor aiming to grow a lifestyle practice (and among lifestyle practices, needs are going to vary depending on the specific advisor and their preferences for gaining personal efficiency). You can go about the process of prioritizing yourself or look to technology consultants for assistance (either in choosing technology, or implementing it), but the reality is that your practice can be tremendously more efficient by just implementing the right technology!

QBI Deduction Strategies For High-Income Financial Advisors (And Other Small Business Owners)

June 27, 2018 07:01 am 0 Comments CATEGORY: Taxes

For financial advisors, the new Qualified Business Income (QBI) deduction (also known as the IRC Section 199A deduction, or the pass-through deduction) presents not just many tax planning opportunities for small business owner clients, but also tax planning opportunities for financial advisors themselves as small business owners. The caveat, however, is that the 20% QBI deduction may be very limited for financial advisors, because they are classified as "Specified Service Business" owners under the new rules, and, as a result, any "high income" advisors (defined as those whose taxable income exceeds $315,000 when filing a joint return, or $157,500 when filing otherwise) are subject to a phaseout of their potential full QBI deduction.

In this guest post, Jeffrey Levine of BluePrint Wealth Alliance, and our Director of Advisor Education for Kitces.com, examines how high-income financial advisors (and other Specified Service Businesses) can utilize strategies to get the most benefit from their QBI deduction, including spinning off and renting back depreciable property, creating a PEO and leasing back employees, condensing lifetime giving via the use of a donor-advised fund, and other strategies!

The good news of the new QBI rules, and the phaseout for Specified Service Businesses (including financial advisors), is that it still takes a fairly substantial income to phase out the deduction, and for those under the income thresholds, the full QBI deduction remains available. On the other hand, because the QBI deduction phaseout is based on total household income from all sources (albeit after all deductions), even advisors who themselves don't earn more than the threshold amount may still end out phasing out some or all of the deduction based on other income (e.g., spousal income, real estate income, portfolio income, etc.).

Fortunately, though, not all is lost for financial advisors who have entered into the QBI phaseout zone. First and foremost, advisors can look to strategies that convert the advisor’s specified service business income into "other" income derived from a non-specified trade or service business, such as by spinning off any firm-owned real estate into a separate entity (and leasing it back at fair market value), spinning off non-advisory employees and leasing them back through a professional employer organization (PEO) (as a PEO would be eligible for a QBI deduction, so long as it is not deemed an advisory business), or holding the firm's intellectual property under a different entity and then licensing it back to the firm (as the intellectual property income may be eligible for a QBI deduction). The net result of such strategies is that the advisor's total income is the same, but occurs by reducing the amount of specified service business QBI generated from their practice (as rent, employee leasing, etc, are deductible business expenses), while simultaneously increasing the amount of QBI generated from the separate (non-specified-service and QBI-deduction-eligible) businesses.

For those who are in the midst of the QBI phaseout zone, planning can be even more impactful, as marginal tax rates during the QBI phaseout can spike as high as 64%... which may lead advisors to increase investment into the firm (as deductions are more valuable at the higher rate!), shift income to other years (that are outside the phaseout zone), or potentially even cut back on their workload (if they're really only keeping 36 cents on the dollar before the additional impact of state income taxes!).

Ultimately, the key point is to acknowledge that high-income financial advisors (and other specified service business owners) have considerable opportunity to plan around the new QBI phaseout zone... even if their total income is within or well beyond the QBI phaseout zone! While the new rules can be a bit tricky (and strategies could shift as the IRS provides more guidance going forward), it appears that QBI strategies will be a key focus going forward, and present a considerable planning opportunity for advisors (and their clients!) to reduce their overall tax burden!

#FASuccess Ep 078: Understanding And Serving The Needs Of Truly Ultra-High-Net-Worth Investors with Charlotte Beyer

June 26, 2018 07:01 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome, everyone! Welcome to the 78th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Charlotte Beyer. Charlotte is the founder and former CEO of the Institute for Private Investors, a private networking organization specifically for ultra-high-net-worth investors, and some of the advisors who serve them.

What's unique about Charlotte, though, was the way she built a series of conferences, networking events, and online community for ultra-high-net-worth individuals before the world of social media and online communities became what they are today... and in doing so, demonstrated and proved that ultra-high-net-worth clients really do have a set of unique needs and challenges, for which they need both an organization, and advisors, dedicated to serve them.

In this episode, we talk in depth about the two biggest worries of ultra-high-net-worth families – which is not necessarily about how to maximize their investment returns or even minimize their taxes, but how ensure that their children don't grow up to be entitled or otherwise adversely impacted by the family wealth, and how to avoid the risk of being "taken" and conned or scammed out of their money – what Charlotte calls the five "Ps" that she counsels ultra-high-net-worth investors to consider when evaluating an advisor, including the firm's People, Performance, Process, Philosophy, and Phees, why the future of working with the ultra-wealthy is all about high-tech and high touch, and what ultra-high-net-worth investors really want to hear from an advisor to connect with them in a world where they hear a ton of advisor "pitches" to them that all sound the same.

We also talk about how Charlotte herself built IPI as an organization, how the effort to create a community organization for ultra-high-net-worth investors almost failed out of the gate, the way she structured the organization's meetings and established group norms to promote the interaction between ultra-high-net-worth investors and the advisor community, and the lessons that any advisor can draw in figuring out how to really listen to the clients you're serving an adapt what you offer them to fit what they really want and need.

And be certain to listen to the end, when Charlotte provides her suggestions about what financial advisors should consider if they want to move "up market" into serving ultra-high-net-worth clients, and the way the ultra-high-net-worth space is shifting as wealth gets younger (with the rise of Gen X and Gen Y ultra-high-net-worth investors), as women control an increasing portion of ultra-high-net-worth wealth (and have different expectations of their advisors), and as the advisor value proposition itself continues to change as technology automates for free many of the things that we previously were paid for.

So whether you are interested in learning more about how to build a community around your niche, the unique challenges and goals of ultra-high-net-worth individuals, or what you should consider if you are interested in moving "up market", I hope you enjoy this episode of the Financial Advisor Success podcast!

Announcing The First Kitces Research Survey On The Real Financial Planning Process

June 25, 2018 07:01 am 0 Comments CATEGORY: Nerd's Eye View

Financial planning, and the process of creating a financial plan, has changed extensively over the nearly 45 years since the first class of CFP certificants. While early on, the financial plan was used primarily as a Calculator to do Needs-Based Analyses for the products they had to sell, over time it evolved into a Comprehensive Financial Plan that advisors could actually get paid for independent of any product implementation, which advisors then in turn Customized even further, and are now increasingly delivering Collaboratively with clients (where the focus is on the planning experience, and The Plan itself is merely delivered after the fact to commemorate the planning decisions already made).

Yet unfortunately, remarkably little research exists on how, exactly, financial advisors are actually preparing and delivering financial plans today. How often do advisors charge separately for planning? What is it that they actually deliver to clients? When advisors complain that it is very “time-consuming” to do financial planning, which part, exactly, is so time-consuming? And to what extent does financial planning software expedite the process… or exacerbate the problem?

In this context, we’re excited to announce the first Kitces Research initiative – a comprehensive study on the process that financial advisors actually go through to create and deliver a financial plan. Think of it as a benchmarking study for the creation of the financial plan itself, with a focus on identifying best practices.

So whether you’re frustrated that financial planning software doesn’t “do” what you need it to in order to demonstrate its value, or are simply looking for ideas to refine your own financial planning process to be more time-efficient or cost-effective (or valuable and able to command a higher price!), I hope you’ll take a few minutes to participate in our Financial Planning Process survey and help the world better understand what real financial planners actually do!